Loyalty: Will changes to rewards affect travel programmes?

In the last year or so, it’s almost as if Chancellor George Osborne has taken over the running of some of the world’s major airlines, looked at the perks of the frequent flyer and decided that having a lot of freeloaders jetting around at someone else’s expense is just jolly well unfair.

Austerity thinking doesn’t really fit with traditional airline loyalty schemes, which, as benefits go, take some beating where business travel is concerned.

Think about it: someone else buys you an expensive ticket and as a reward for his or her largesse, you get what is ef­fectively free money poured into a virtual account for you – not them – to spend as you please. Upgrading the family holiday from Malaga to Miami, for example.

Around the world, however, change is afoot, because the number of airlines taking the austerity axe to their frequent flyer programmes (FFPs) is growing, with British Airways making radical changes to its Avios redemption in April, follow­ing Delta, United and Emirates. In the good old days it was simple: generally, the further you went, the more points you got. Now it’s increasingly down to spend, which is bad news for many business trav­ellers forced to endure economy travel on more occasions than in the past. Earning fewer points means fewer tier points, which, in turn, means that sweetening the economy flight with a few hours in the lounge courtesy of a Silver card may no longer be an option. A brief examination of some changes made by major airlines gives an idea of the revolution underway.

Good news, bad news

First, the good news – if you are lucky enough to always fly up front, things haven’t changed too much; in fact, in many cases, they have got better. Under Delta’s new scheme, introduced on January 1, a US$5,000 business class return ticket from London to New York now earns a bottom tier member 25,000 Sky Miles, compared to 6,904 before, when it was based on the distance flown. Now the bad news: drop the price to a budget economy fare of, say, US$600 and while you would previously have earned 6,904 points, you now get only 3,000. There are several sweeteners to soften this bump, accord­ing to Delta. For example, Sky Miles can now be redeemed for one-way travel and there are no blackout dates; plus a calendar shows the lowest redemption price for dates selected.

When it comes to tier points, these continue to be based on distance or segments flown, with 25,000 miles or 30 segments being the minimum for Delta’s Silver status, one of four bands, with the other tiers set at 50,000, 75,000 and 125,000 miles. Another new require­ment however, for US-based members, is minimum annual spend, with Silver needing at least US$3,000 and Diamond, the top tier, US$15,000.

Delta is honest in its description of the changes, saying that miles “are now earned based on ticket price to better reward customers who spend more”.

It’s becoming a popular concept, with British Airways among the converts. In April, BA told its customers that buying the cheapest of cheap seats – classes O, G and Q – would earn them only a quarter of the Avios points per mile they were used to. Most economy fares now earn only 50 per cent of the points previously awarded, while those buying flexible economy fares (Y, B and H classes) see no change. Premium economy passen­gers saw a small reduction in rewards in the lowest fare categories, but like Delta’s scheme, many business and all first class passengers saw their awards increase.

United adds another twist in that its spend-based rewards differ according to tier status. An entry-level Mileage Plus member earns 2,500 miles for a US$500 spend, while top-of-the-tree Premier 1K cardholders receive 5,500.

United CEO Jeff Smisek sums up the new creed: “If you go into a department store, they very rarely reward you for the number of times you’ve been in the store. That’s what the old mileage programmes were doing, because that was how tech­nology allowed you to track it in the 1960s and ’70s when they started.

“The world has changed. We think we should reward the high-value customer – and so do many other airlines. If I’m at the back of the plane on the cheapest possible fare, I’m nowhere near as valuable as the customer at the front.”

He accepts there are critics, but adds: “People who were over-compensated previously are unhappy – but people who were under-compensated before are delighted.”

When it comes to tier points, those as­pirational young executives might also get a bit huffy with BA’s scheme. The lowest economy fares now earn 25 per cent of tier points, instead of 50 per cent, while extra points gained for flying London City-New York are a thing of the past.

Small- and medium-sized enterprises (SMEs) have been affected, too, as BA’s SME scheme, On Business, now has its own tier points system, with yearly total spend taken into account. Many small firms will struggle to get beyond Tier 1, with a spend of up to £29,999, which earns one point per £1 and even those reaching Tier 3, with a spend ten times this, earn only 1.5 points per £1. On the plus side, upgrades are now open to more booking categories than before and the SMESmall and medium-sized enterprises scheme does have the attraction that points are collected for the company as a whole and are transferable between staff.

As for redemption, points don’t neces­sarily mean prizes. All BA customers will find they need 50 per cent more points to travel in business at peak times than before, and 25 per cent more at other times. The cheap seats are cheaper, however, with BA saying these need an average 26 per cent fewer Avios off peak. In BA’s case, all redemption fares quoted are now minus taxes and fees, another cost increase.

A question of loyalty

Changes like these, needless to say, have their critics. Rob Burgess, editor of frequent flyer website Head For Points, believes the big carriers have got it wrong by increasing the rewards to the very customers who walk away when times are hard – big corporates. This 20 per cent or so of an airline’s revenue has no real loyalty, he argues. “People who you think are your best customers, aren’t necessarily”, he says. “The people you want staying with you in the long run are the ones you are penalising.”

He believes airlines are moving in the opposite direction to loyalty schemes in other areas, like supermarkets. Burgess uses the Tesco Clubcard as an example, which targets each individual customer, aiming to increase their spend by 5-10 per cent. “Everyone gets that, whether a big or small spender.”

Changing habits

So what might this shake-up mean for buying patterns and travel habits? On the face of it, the growth of alliances and reciprocal FFPs should be the answer to anyone desperate to build up points – travel programmes that allow a choice of carriers in the same alliance in theory give the traveller a chance to switch to one with a distance-based scheme if they wish. Buying a cheap business class fare on one carrier might then bring you tier status on your preferred airline; but unfortunately, it doesn’t work like that when it comes to redemption – anyone with American Airlines points gained on transatlantic flights who attempts to cash them in for a European sector will find their currency severely diminished. Then there’s the in­ability to add points using, for example, credit cards, or buying petrol or diesel.

The changes make short-haul even more of an open market to the corporate world. By downgrading the points awarded (in BA’s case, from an over-generous 500 minimum on a domestic sector to 125), the switch to no-frills carriers becomes less of a wrench. The obvious alternative is Easyjet, which has no intention of giving FFPs to anyone, but which does offer larger companies a managed travel programme via travel management companies. Easyjet Plus membership will bring you fast-track security and seat selection, but no points or lounge access – although the latter can always be bought.

Another factor is that now BA has made Club Europe legroom the same as economy, it is a less attractive upgrade decision, so will attract less redemption point spend.

Wayne Lappage, strategic business manager at Chambers Travel Manage­ment, believes the changes have already made a difference to corporate buying habits. “The three US legacy carriers that have changed their programmes this year haven’t really made an impact on buying behaviour as far as we’ve noticed,” he says. “But after BA made changes in April, we did see an increase in business mix with low-cost carriers on short European trips, and a slight increase in long-haul travel toward BA. I don’t think it’s a coincidence, as fewer Avios are now being awarded for a short-haul restricted ticket. In fact, I have seen a rise of 12 per cent with one low-cost carrier on domestic routes and short-haul trips to Frankfurt and Paris year-on-year. It isn’t a huge change in buying behaviour, but it is noticeable when comparing year-on-year data for the same routings.”

However, a travel buyer at a major European manufacturer asserts changes to FFPs don’t mean changes to buying policy because “our travel programme and our buying decisions were never based on mileage programmes”. He says that while travellers do try to optimise their own points, “in effect the airlines have reduced the value of their FFPs so much – more and more miles are needed for awards and fewer perks are available – that we see a lot less of such behaviour”.

But Chambers Travel’s Lappage says that in long-haul “an increase is notice­able in favour of BA for companies who allow their travellers to sit at the front of the aircraft and use the higher tiered classes”. He believes this is in part due to the increase in Avios points as well as a sign of returning to a healthier economic climate. “Middle managers who now have the option to choose their preferred airline will favour the airline with which they can gain additional points,” he adds.

At Wings Travel Management, chief operating officer Paul East says the FFP changes have “not had a dramatic effect on client buying patterns” and adds: “Our clients are still focused on obtaining a range of options that will allow them to purchase the most suitable itinerary – be that based on price or schedule.

“However, many clients still raise the issue that when travellers are flying on Avios tickets, their specific sectors are not recognised as eligible for retaining their current card status.”

Business Travel Direct head of client partnerships, Vanessa Bailey, also believes buying policy won’t change in the era of FFP austerity. “At the end of the day, price is still the key,” she says. “It’s a ‘nice to have’, rather than something they make decisions on.” What’s more, she adds, there may be extra bad news for the points collector if the policy of one of her clients catches on. “We have quite a large organ­isation with several hundred travellers that tells its staff to use their own points if they want to upgrade.” This sounds like a natural riposte to any frequent traveller complaining about the economy-only rule imposed by his or her company, but for some road warriors, it could be the last straw. Bailey adds, however, that an obvious flaw to this idea is that monitoring an employee’s points collection presents difficulties in itself.

Austerity Vs Aspiration

The postscript to the new FFP order is that no airline has yet introduced a real austerity package, and based redemption on the actual cash price. “The endgame would be one mile per £1 spent and one pence per mile redeemed,” says Burgess at Head For Points. “I don’t think anyone would dare do that because it kills the aspiration element – people want to think about collecting 80,000 points and getting a £3,000 business class flight to Dubai.”

Enough big-name airlines have signed up to spend-based schemes to make them likely to be the future norm. We may have to find a new way to describe FFPs – from now on getting the perks looks increasingly like being a case of not of how far or often you travel, but how much you pay. For most flyers, the idea of staying loyal to a brand looks less appealing, and that phrase about you not forgetting you have a choice of airline is looking ever more apt.

Be prepared for some pushback against policy, and traveller ‘friction’. Travellers may book more last minute, in the hope that only higher fares or classes are available. Mitigate by ensuring that advanced purchase trends are monitored.

Some travellers may seek to book ‘off programme’, so buyers should ensure that processes exist to capture any maverick spend in their back-end expense system.

This could be a good time to enhance lines of communication with travellers, to educate on policy and reiterate the reasons for it.

There may be some loss of productivity, with travellers unable to use lounges, or spending more time queuing.

Travel buyers need to be mindful of the total cost of ownership – cheaper tickets that see travellers losing status may ultimately result in additional costs of seating and baggage charges. Do buyers know how many status cards exist in their company, and the costs of retaining or losing these?

The selection of airline suppliers will be subject to increased attention from travellers and business leaders. This might be an opportunity to move from a more adversarial relationship with airlines to a more collaborative one, to be able to better navigate the challenges and opportunities ahead.

Travel buyers may consider looking at airport lounge access policy, as travellers start to lose status. The opening of the new Aspire lounge at LHR T5 looks like good timing!